Chrysler opts for bankruptcy route

May 1, 2009|By Detroit Free Press

WASHINGTON -- President Barack Obama shepherded Chrysler LLC into a historic bankruptcy Thursday, backed by more than $8 billion in new government aid designed to allow a partnership to emerge in 30 to 60 days.

The dramatic move, supported by the United Auto Workers and Chrysler's major lenders, signals to bondholders at General Motors Corp. that the Obama auto task force will act on its vow to take GM into a similar bankruptcy if they do not agree to swap their GM debt for shares in a reworked GM.

Obama emphasized Thursday that the move was meant to secure Chrysler's future and a return on the government's investment, and that it was the best route to preserve jobs at the third-largest U.S. automaker. But as part of the plan, Chrysler said most of its factories will shut down Monday, and will restart when the company emerges from bankruptcy.

"The necessary steps have been taken to give one of America's most storied companies a new lease on life," Obama said.

But the president also criticized a group of investment firms and hedge funds that did not agree to a $2.25 billion cash offer to cancel $6.9 billion in Chrysler's debt, saying they were holding out "for the prospect of an unjustified taxpayer-funded bailout."

Chrysler Chairman Robert Nardelli, who will leave once the company emerges from bankruptcy, said it would continue to operate its three brands and Mopar parts service.

Fiat Chief Executive Officer Sergio Marchionne said the deal "will create a powerful new automotive company, while helping preserve jobs and a manufacturing industry that is critically important to the U.S. and Canadian economies."

Under Chrysler's bankruptcy, filed in New York Thursday, the government will provide $3.3 billion for Chrysler to operate in bankruptcy. UAW's health care trust fund will own 55 percent of the new Chrysler, while Fiat will hold 20 percent, the U.S. government will hold 8 percent and the Canadian and Ontario governments will together hold 2 percent.

The Obama administration will also give additional aid to GMAC so that it can take over lending to Chrysler's customers and dealers from Chrysler Financial, which the government has deemed not viable. And the Canadian government will also provide new financial aid to Chrysler's operations in that country.